private equity firm
A private equity firm is an investment management company that provides financial backing and makes investments in the private equity of startup or operating companies through a variety of loosely affiliated investment strategies including leve ...
, specializing in
leveraged buyout
A leveraged buyout (LBO) is one company's acquisition of another company using a significant amount of borrowed money (leverage) to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loan ...
s (LBOs). At its peak in the late 1990s, Forstmann Little was among the largest private equity firms globally. Ultimately, the firm would suffer from the bursting of the internet and telecom bubbles, having invested heavily in technology and
telecommunications
Telecommunication is the transmission of information by various types of technologies over wire, radio, optical, or other electromagnetic systems. It has its origin in the desire of humans for communication over a distance greater than that fe ...
companies. Following the death of the last surviving founder,
Theodore Forstmann
Theodore Joseph Forstmann (February 13, 1940 – November 20, 2011) was one of the founding partners of Forstmann Little & Company, a private equity firm, and chairman and CEO of IMG, a global sports and media company. A billionaire, Forstmann ...
, in 2011, the firm was dissolved and its assets sold off. It closed in May 2014.
History
Ted Forstmann
Theodore Joseph Forstmann (February 13, 1940 – November 20, 2011) was one of the founding partners of Forstmann Little & Company, a private equity firm, and chairman and CEO of IMG, a global sports and media company. A billionaire, Forstmann ...
was a golfing partner of
Derald Ruttenberg
Derald H. Ruttenberg (17 February 1916 – 19 September 2004) was a lawyer who became a deal maker, organizing large industrial mergers. He arranged the merger of Studebaker and Worthington Corporation, and for some time ran the combined Stud ...
at the
Deepdale Country Club
Deepdale Golf Club is a private golf club in Manhasset, New York, just east of New York City on Long Island.
Early years
The club was founded by William K. Vanderbilt II in 1924, using part of his Deepdale summer estate at Lake Success, New York, ...
on
Long Island
Long Island is a densely populated island in the southeastern region of the U.S. state of New York (state), New York, part of the New York metropolitan area. With over 8 million people, Long Island is the most populous island in the United Sta ...
. He arranged for Ruttenberg to meet
Henry Kravis
Henry R. Kravis (born January 6, 1944) is an American businessman, investor, and philanthropist.Jerry Kohlberg of the start-up
Kohlberg Kravis Roberts
KKR & Co. Inc., also known as Kohlberg Kravis Roberts & Co., is an American global investment company that manages multiple alternative asset classes, including private equity, energy, infrastructure, real estate, credit, and, through its strate ...
. Kravis and Kohlberg proposed what they called a
leveraged buyout
A leveraged buyout (LBO) is one company's acquisition of another company using a significant amount of borrowed money (leverage) to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loan ...
. After the two had left, Ruttenberg suggested that Forstmann could do the same himself. Ruttenberg arranged funding for Forstmann, who launched Forstmann Little & Company in 1978.
The company was founded by brothers Ted and Nick Forstmann, and
Brian Little
Brian Little (born 25 November 1953) is an English football manager and former player.
As a player, Little was a striker who spent his entire career for Aston Villa in a career that spanned from 1971 to 1980. He made 247 league appearances, ...
. With the deaths of Brian Little and Nicholas Forstmann in 2000 and 2001, respectively, Ted Forstmann was the chief partner. A third brother, J. Anthony Forstmann, is a limited partner in the firm.
Between its inception in 1978 to its 2014 closing, the firm made more than 30 acquisitions and significant investments returning over $14 billion in profit for its investors.
Successful acquisitions included
Gulfstream Aerospace
Gulfstream Aerospace Corporation is an American aircraft company and a wholly owned subsidiary of General Dynamics.
Gulfstream designs, develops, manufactures, markets, and services business jet aircraft. Gulfstream has produced more than 2,000 ...
Dr Pepper
Dr Pepper is a carbonated soft drink. It was created in the 1880s by pharmacist Charles Alderton in Waco, Texas, and first served around 1885. Dr Pepper was first nationally marketed in the United States in 1904. It is now also sold in Euro ...
General Instrument
General Instrument (GI) was an American electronics manufacturer based in Horsham, Pennsylvania, specializing in semiconductors and cable television equipment. They formed in New York City in 1923 as an electronics manufacturer. During the 1950s, ...
. The company was usually successful in making a profit on such purchases, selling Gulfstream to
General Dynamics
General Dynamics Corporation (GD) is an American publicly traded, aerospace and defense corporation headquartered in Reston, Virginia. As of 2020, it was the fifth-largest defense contractor in the world by arms sales, and 5th largest in the Uni ...
, and General Instrument to
Motorola
Motorola, Inc. () was an American Multinational corporation, multinational telecommunications company based in Schaumburg, Illinois, United States. After having lost $4.3 billion from 2007 to 2009, the company split into two independent p ...
. In the case of Gulfstream, Ted Forstmann took direct control of the financially ailing company's day-to-day operations to improve the company's attractiveness to a potential acquirer.
The company has also had some flops, such as McLeodUSA and
XO Communications
XO Communications, LLC (previously Nextlink Communications, Concentric Network Corporation and Allegiance Telecom, Inc.) was an American telecommunications company. Before being purchased by and later absorbed by Verizon Communications. XO provid ...
. In 2002, the state of Connecticut sued Forstmann, Little & Company to recover $125 million in losses associated with investments in these two telecom companies, citing negligence and breach of contract. While Forstmann settled the case for $15 million, the suit was considered a landmark, launching a series of similar actions between private equity fund managers and public entity investors.
One prominent episode in the life of the company was the 1988 bidding war for RJR Nabisco. Forstmann Little offered to acquire RJR Nabisco, but the management (chiefly
F. Ross Johnson
Frederick Ross Johnson, OC (December 13, 1931 – December 29, 2016) was a Canadian businessman, best known as the chief executive officer of RJR Nabisco in the 1980s.
Early life and education
Born in Winnipeg, Manitoba, on December 13, 1931, ...
) instead chose
Shearson Lehman Hutton
Shearson was the name of a series of investment banking and retail brokerage firms from 1902 until 1994, named for Edward ShearsonKohlberg Kravis Roberts & Co. The episode was popularized in the book '' Barbarians at the Gate: The Fall of RJR Nabisco''.
Other headline transactions the firm participated in include
Revlon
Revlon, Inc. is an American multinational company dealing in cosmetics, skin care, fragrance, and personal care. The headquarters of Revlon was established in New York City on March 1, 1932, where it still remains. Revlon was founded by brothe ...
(1985), which resulted in the so-called Revlon Duty, and
Citadel Broadcasting
Citadel Broadcasting Corporation was a Las Vegas, Nevada-based broadcast holding company. Citadel owned 243 radio stations across the United States and was the third-largest radio station owner in the country. Only iHeartMedia and Cumulus Media ...
, of which Forstmann Little owns 27%, following a merger with ABC Radio in 2006. In 2004, Forstmann Little acquired
IMG img or IMG is an abbreviation for image.
img or IMG may also refer to:
* IMG (company), global sports and media business headquartered in New York City but with its main offices in Cleveland, originally known as the "International Management Group ...
in a $750 million deal, and in 2005 bought
24 Hour Fitness
24 Hour Fitness is a privately owned and operated fitness center chain headquartered in Carlsbad, California. It is the second largest fitness chain in the United States based on revenue after LA Fitness, and the fourth in number of clubs (behi ...
for $1.6 billion.
Dissolution
In 2011, Theodore Forstmann, the last surviving founder, died of brain cancer. The law firm
Akin Gump Strauss Hauer & Feld
Akin Gump Strauss Hauer & Feld LLP is an American multinational law firm headquartered in Washington, DC. It is the largest lobbying firm in the United States by revenue. Akin Gump has consistently been ranked as among the top law firms in the Un ...
dissolved the firm by selling off its assets. IMG was sold in 2013 for $2.3 billion to
William Morris Endeavor
Endeavor Group Holdings, Inc. (formerly known as William Morris Endeavor Entertainment, WME or WME-IMG) is an American holding company for talent and media agencies with its primary offices in Beverly Hills, California, United States. The compa ...
. The last asset to be sold was 24 Hour Fitness, which was purchased for $2 billion by
AEA Investors
AEA Investors is an American middle market private equity firm. The firm focuses on leveraged buyout, growth capital, and mezzanine capital investments in manufacturing, service, distribution, specialty chemicals, consumer product, and busines ...